| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : NGUYEN -v- WESTSCHEME PTY LTD & ANOR [2005] WADC 87 CORAM : MULLER DCJ HEARD : 12-13 APRIL 2005 DELIVERED : 10 MAY 2005 FILE NO/S : CIV 2700 of 2003 BETWEEN : DAT THOAI NGUYEN Plaintiff
AND
WESTSCHEME PTY LTD
First Defendant
LUMLEY LIFE LTD
Second Defendant
Catchwords: Insurance - Claim by insured on grounds of total permanent disablement - Reasonableness of decision by insurer and trustee to defer making a determination - Liability of insurer - Whether evidence established total permanent disablement
Legislation: Insurance Contracts Act 1984
Life Insurance Act 1995
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Property Law Act 1969
Result: Plaintiff's claim against both defendants allowed Representation:
Counsel:
Plaintiff : Mr T Lampropoulos
First Defendant : Mr G R Donaldson
Second Defendant : Mr G R Donaldson
Solicitors:
Plaintiff : Vertannes Georgiou
First Defendant : Ilberys
Second Defendant : Ilberys
Case(s) referred to in judgment(s):
Beverley v Tyndall Life Insurance Co Ltd (1999) 21 WAR 327
Chammas v Harwood Nominees Pty Ltd, NSWSC; BC9301704; 14 April 1993
Eric Noel Tonkin & Ors v Western Mining Corporation Ltd & Anor [1998] WASCA 101
Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341
McArthur v Mercantile Mutual Life Insurance Co Ltd; [2001] QCA 317
Sayseng v Kellogg Superannuation Pty Ltd & Anor [2003] NSWSC 945
Telstra Super Pty Ltd Flegeltaub [2000] VSCA 180
Thomas Arthur Heitman v Guardian Assurance Co Ltd, unreported; SCt of WA; BC 9201339; 12 February 1992
Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107
Case(s) also cited:
Edwards v The Hunter Valley Co Op Dairy Co Ltd, NSWSC; BC9201930; 22 April 1992
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1 MULLER DCJ: Between 21 January 1998 and 5 April 2000 the plaintiff was employed as an electrical trades assistant with Harwal Electronic Industries Pty Ltd. On 24 January 2000 he ceased work due to an injury to his right arm and elbow. The injury was a combination of an earlier incident when the plaintiff lived in Vietnam and a result of lifting heavy objects during his employment in this country.
2 The plaintiff was a member of a superannuation fund known as Westscheme. The trustee of the fund took out an insurance policy to cover its members for various contingencies including total and permanent disablement. On 25 May 2001 the plaintiff made a claim for benefits under both the Fund and the Policy on the ground that he was totally and permanently disabled as defined in the Policy. In his Statement of Claim the plaintiff alleges that both the trustee and the insurer have unreasonably and in breach of their duty failed to make a determination whether he is totally and permanently disabled within the meaning of the Policy. The plaintiff has sought a declaration that the decision by both the trustee and insurer to defer making a determination whether he is totally and permanently disabled is unreasonable and further that his condition at the time of making the application was such as to render him totally and permanently disabled within the meaning of the definition in the policy document.
Nature of the insurance scheme 3 Westscheme Pty Ltd, which is the first defendant in the action, was the trustee of the fund of which the plaintiff was a member. The fund was established by what was referred to as a Deed of Amendment. As a member the plaintiff was entitled to an insured benefit which was defined in s 1 of the Deed of Amendment as the amount payable to the fund by an insurer on the happening of an event insured under a policy of insurance with the insurer. Clause 6.3 of the Deed of Amendment empowered the trustee in its discretion to take out one or more policies issued by an insurer at the expense of the fund and to deal with those policies in any manner which the trustee considered suitable as if it were the sole and absolute legal and beneficial owner of those policies. Clause 6.3(c) of the Deed of Amendment stipulated that the payment of an insured benefit to a member from the fund was subject to the member providing the trustee with all relevant information required by the insurer and, if required, submitting to any medical examination required by the trustee or the insurer from time to time. Clause 6.3(g) required the trustee to decline to pay or reduce any payment of the insured benefit to the member if the insurer refused to pay or reduced the amount payable. Pursuant to cl 10 of
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the Deed of Amendment the insured was entitled to an insured benefit set out in a plan contained in Schedule 1 to the Deed. Clause 1.5(g) of the Schedule provided for the payment of a benefit to a member for total and permanent disablement. 4 The expression total and permanent disablement is defined in cl 1 of the Deed of Amendment. This definition referred to the definition of total and permanent disablement in the contract of insurance between the trustee and the insurer. The insurance policy between Westscheme Pty Ltd and Lumley Life Ltd, the insurer and second defendant, contains the following definition in cl 1: "An Insured Person should be considered as totally and permanently disabled as follows: (a) The Insured Person is absent through injury or illness from employment for six consecutive months and in the opinion of Lumley, after consideration of medical and/or other evidence, having become incapacitated to such an extent as to prevent the Insured Person from engaging in their own occupation, or any other occupation for which the Insured Person is reasonably suited by education training or experience;" 5 Clause 2.1 of the insurance contract required the insurer, Lumley Life Ltd, to pay the amount payable under the policy to any person who became totally and permanently disabled in accordance with the cover that applied to that particular person. 6 The policy referred to set out the procedure to be followed when a claim was made. Section 4.02 provided as follows: "Evidence of a Claim 1. After notification of a claim we will provide a claim form which must be fully completed and returned to us within a reasonable period of time, together with evidence of the claim. This may include death certificates, reports from medical practitioners or such other information we may deem necessary to consider the claim. 2. The provision of any employer reports, or reports from treating medical practitioners, as may be required by us to
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lodge a claim, is the responsibility of the Insured Person, including the cost of such reports. 3. Lumley will pay for any subsequent medical professional service expenses we may require to determine a claim to the extent that those costs are limited to those related to fulfilling our specific requests for information." 7 Clause 4.03 of the policy document stipulated that the question whether an injured person was totally or permanently disabled was to be determined solely by the insurer after considering the evidence relevant to the claim. 8 Clause 4.05 required claim payments to be made to the trustee. 9 Evidence was led by the two defendants as to the procedure normally adopted when a claim was made. The trustee of the scheme was required to send the initial claim to the insurer. The insurer investigated the claim and made its recommendation to the trustee either to accept or disallow the claim. If a decision to disallow the claim were made that decision was reviewed by the trustee. The review was generally carried out by an independent assessor appointed by the trustee. Following the decision of the independent assessor another review was undertaken in accordance with the provisions of the Deed of Trust. This review was undertaken by a committee established pursuant to 13.6 of the Deed of Amendment. 10 It was within the context of this scheme I have just outlined that the plaintiff's claim was made.
Events leading up to insurer's decision to defer determination 11 In or about March 2001 the plaintiff approached the trustee to enquire about making a claim for total and permanent disablement. Terri Anne Cowain, the claims manager employed by Westscheme, wrote to the plaintiff on 28 March explaining what documentation was required to substantiate his claim. A further exchange of correspondence occurred and on 4 October 2001 the trustee wrote to the plaintiff advising him that the documents he had provided had been referred to the insurer for assessment. On the same date the trustee sent the insurer the documents which appear at pp 74-87 of the Plaintiff's Book of Documents (exhibit 1). These documents included what were referred to as a "Member Statement of Claim" and "Attending Physician Statement". In the document referred to as the Member Statement of Claim the plaintiff gave his occupation at the time of the claim as being that of a trades assistant and claimed that he
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was disabled to the point that he did not expect to return to work. In par 7 of the Member Statement of Claim he indicated he was awaiting orthopaedic surgery. He went on to assert that he did not hold any professional or trade qualifications other than those qualifying him as a trades assistant. The Attending Physician Statement accompanying his claim was completed by Mr P Honey who was described as an upper limb surgeon. He described the plaintiff's injury as degenerative change in the elbow and asserted the plaintiff was capable of doing very little. He went on to state that the plaintiff became totally unable to work in August 2000 and that he would not be able to return to his former occupation. In answer to the question whether the plaintiff could return to alternative light duties the surgeon said he could provided they were available. In his concluding remarks he said the plaintiff had suffered a complex fracture of the right elbow that was likely to need an elbow joint replacement. 12 On receipt of these documents Ms Natalie Conway, the senior claims manager employed by the insurer, noted Mr Honey's comment that the plaintiff was likely to have to undergo surgery to replace his elbow joint. She said in evidence this was a very significant factor from the insurer's point of view. 13 On 17 October 2001 the insurer wrote to Dr Peter Honey requiring further information. This letter was answered by Dr Ben Hewitt of Sir Charles Gairdner Hospital. In this report Dr Hewitt said he had not gained the impression that the plaintiff was being planned for a right elbow joint replacement. He reiterated that the plaintiff would not be able to work using his right hand for heavy manual labour. 14 Following receipt of this letter the insurer decided to arrange for the plaintiff to be examined by a medical practitioner of its own choice. He was referred to Dr Martyn Flahive who in a report dated 2 May 2002 said the plaintiff was uncertain whether he was going to have an operation on his elbow. Dr Flahive expressed the view that an elbow joint replacement was inappropriate in the plaintiff's case because he was too young to undergo this procedure. He went on to outline other surgical options that might be open and concluded that the severity of the plaintiff's pain precluded him from returning to his former employment. He did add, however, that if his elbow became asymptomatic or the plaintiff underwent some definitive treatment such as an elbow fusion there was a reasonable prospect that he would be able to return to work. He also expressed the view that it might be appropriate for the plaintiff to seek alternative employment in what he described as a lighter job if his elbow did become asymptomatic or he underwent successful treatment.
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15 Following receipt of this report the insurer wrote to Dr Ben Hewitt of Sir Charles Gairdner Hospital on 20 June 2002 requesting additional information. A letter of the same date was also sent to the plaintiff informing him his claim was under assessment and that further information had been sought from his treating doctors. The insurer then received a report dated 28 August 2002 from Dr Brett Bairstow of Sir Charles Gairdner Hospital in which he stated that the plaintiff was being considered for a total elbow replacement. The insurer then decided to obtain a second opinion from Dr Flahive who in a report dated 7 November 2002 confirmed his earlier opinion that there was a reasonable chance the plaintiff would be able to return to light to medium work in a similar occupation if he underwent an elbow fusion. He went on to say, however, that an elbow joint replacement was problematic because it could result in prothesis loosening and the elbow again becoming symptomatic. He reiterated his earlier view that this type of replacement surgery was not considered appropriate in young persons such as the plaintiff because of the risk of wearing the prosthesis out or a loosening of the joint. Even if such an operation were successful, however, Dr Flahive expressed the view that the plaintiff would possibly only be able to return to very light work such as doing wiring, repairing small parts or tools or carrying out a supervisory role.
16 Following this report from Dr Flahive, Natalie Conway, the insurer's claims manager, telephoned the plaintiff on 28 November 2002 to discuss developments. The plaintiff told her he was on a waiting list for surgery but was unsure of the details. Given his uncertainty Ms Conway wrote to the hospital seeking further information and on 16 December 2002 Dr Brett Bairstow replied saying that the plaintiff was waiting to receive a total elbow replacement. 17 It was at this point that the insurer made a decision to defer any determination. Although it reached the view that the plaintiff did not meet the definition of total and permanent disablement because of the possibility that, following an operation, he would be fit for duties on a lighter scale, the information that he was planning to undergo surgery meant that a determination at that point in time was inappropriate. On 3 February 2003 the insurer wrote to the trustee informing the trustee of its decision to defer making a determination and expressing the view that it would be happy to reassess the case after the elbow replacement surgery had been performed and fresh medical evidence had been provided. 18 It was at this point that the insurer and trustee became aware that the plaintiff was legally represented. On 4 February 2003 the insurer received
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a letter from Leonard Cohen & Co saying they were acting for the plaintiff and requesting information and documents relating to his claim. 19 An exchange of correspondence then took place between the plaintiff's solicitors and both the trustee and the insurer. The last piece of correspondence was a letter from the trustee to the plaintiff's solicitors on 19 February 2003. 20 There was then an interval of five months. The next significant event was two letters dated 24 July 2003 from the plaintiff's solicitors to both the insurer and the trustee. The letters were in identical terms. These letters were crucial and I quote them in full: "Our Ref: EV:PC:EC:030056 Email: [email protected] Date: 24 July, 2003 Ms Nathalie Conway Lumley Life Limited Lumley House 309 Kent Street SYDNEY NSW 2000 Dear Ms Conway OUR CLIENT : DAT THOAI NGUYEN TOTAL AND PERMANENT DISABILITY CLAIM – GR060-GL WESTSCHEME MEMBERSHIP NO. 65348687 We refer to previous correspondence with respect to the abovenamed client. We note that a decision has not been made with respect to our client's claim for a total and permanent disablement benefit despite our client's claim form being lodged with Westscheme on or about 25 May 2001. We understand that the delay in making a decision on our client's claim may have been contributed to by the fact that
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consideration was being given by our client to undergoing surgery at Sir Charles Gairdner Hospital. Our client instructs us that he has been on a waiting list for several years to undergo this surgery. He has now instructed that he will not be proceeding to surgery. We enclose copies of specialist medical reports that we have received from: 1. Mr Alan J Prosser, Orthopaedic Surgeon, dated 26 May 2003; 2 Dr Steven Clarke, Occupational Physician dated 24 April 2003. Both of these medical opinions lend clear and unequivocal support to our client's claim for a total and permanent disablement benefit. We would be grateful if you would make a favourable decision on our client's claim for a total and permanent disablement benefit within the next 4 weeks. Yours faithfully, VERTANNES GEORGIOU Enc" 21 Accompanying this letter were two medical reports from a Dr Steven Clarke and an orthopaedic surgeon, Mr Alan Prosser. In his report Dr Clarke referred to the possibility of right elbow replacement and said the plaintiff was concerned he may suffer neurological damage if he underwent such surgery. He went on to say that the plaintiff was somewhat reticent to undertake this procedure. He also pointed out that Mr Honey, the original reviewing surgeon, had apparently considered the plaintiff too young for that procedure. He concluded that the plaintiff was obviously not fit for his normal work as an electrician and expressed the view that he was totally and permanently disabled from carrying out both his normal work and any other work for which he was suited or qualified by virtue of prior experience or training. 22 The report from Mr Alan Prosser was also significant. In that report dated 26 May 2003 reference was made to a final decision having been taken for a total elbow replacement at Sir Charles Gairdner Hospital. In
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Mr Prosser's opinion a total elbow replacement would improve the range of movement significantly, and reduce pain, but would still leave a relatively weak elbow and the possibility of problems in the longer term. He expressed the view that if the plaintiff underwent a total elbow replacement he would still not be fit for heavy lifting or heavy manual work. In Mr Prosser's opinion he would be unfit for normal duties as an electrical trades assistant and for any other job for which he was reasonably equipped by education, training or experience. 23 The insurer did not accept the solicitor's letter at its face value. Natalie Conway, the insurer's claims manager, said the insurer decided to check the assertion that the plaintiff was not going to have surgery. She said she was uncertain whether the information was correct because the plaintiff had personally assured her in the past that he wanted to undergo surgery and had been on a waiting list. She considered it unusual that he had changed his mind. She wrote to Sir Charles Gairdner Hospital on 6 August 2003 asking if the plaintiff was still waiting to receive a total elbow replacement. On 12 August 2003 she received a facsimile message from Sir Charles Gairdner Hospital saying the plaintiff was scheduled for elbow replacement on 1 September 2003. A computerised document that accompanied the facsimile message indicated that the surgery had been booked on 22 July 2003 only two days before the date of the letter from the plaintiff's solicitors advising that no surgery was to take place at all. Ms Natalie Conway went on to explain how a meeting occurred on 21 August 2003 when the matter was discussed and she was directed to reply to the plaintiff's solicitors advising them that the insurer intended to maintain its original decision. She said on 25 August 2003 she contacted the trustee and was advised that the trustee would advise the plaintiff's solicitors of the decision that had been taken. On 26 August 2003 the insurer sent a letter to the trustee pointing out the plaintiff's solicitors had advised by letter dated 24 July 2003 that the plaintiff did not intend to proceed with the surgery but that Sir Charles Gairdner's Hospital had confirmed that the total elbow replacement was scheduled for 1 September 2003. The insurer went on to say that in the light of this information their recommendation not to process the claim remained unchanged but that they would be happy to reassess the matter after surgery had taken place. 24 It is common cause that the trustee did not write to the plaintiff's lawyers. Neither the plaintiff nor his lawyers knew of the information provided to the insurer by Sir Charles Gairdner Hospital in the facsimile message. This probably explains why on 4 September 2003 the plaintiff's solicitors once again wrote to the insurer referring to their letter of 24 July
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2003 and pointing out that they had not received any reply. They went on to refer to the medical reports of Alan Prosser and Steven Clarke they had sent to the insurer under cover of their letter dated 24 July 2003 and asked whether their client's claim for a total and permanent disablement benefit had been approved. A copy of this letter was sent to the trustee. On receipt of this letter Natalie Conway, the insurer's claims manager, contacted the trustee and was told that the trustee had written to the lawyers on 15 October 2003 and that no further action was required. Ms Conway said she telephoned the plaintiff's lawyers on the same date and informed them they would be receiving an answer to their letter from the trustees. 25 In the meantime the trustee referred the insurer's decision to defer consideration of the claim for review by an independent entity called Advanced Personnel Management. 26 On 11 September 2003 the trustee wrote to the plaintiff's solicitors saying their client's claim was currently being reviewed by the trustee and that the solicitors would be contacted once the review was completed. 27 The review was undertaken by a committee appointed by the trustee and the decision to defer consideration of the claim was confirmed. 28 What followed was the letter dated 15 October 2003 from the trustees to the plaintiff's solicitors which I referred to earlier. I quote the first three paragraphs of the letter in full: "Westscheme's insurer, Lumley Life, has deferred your TPD claim until the planned total elbow replacement surgery has been performed. The insurer has confirmed this surgery was scheduled for September of this year. The Westscheme Trustee has undertaken a review of the insurer's processes and decision. Based on these considerations, the Trustee is satisfied with the insurer's decision to defer your claim. The insurer will review the matter upon receipt of new medical evidence obtained after the surgery." 29 In a later section of the letter the trustee said: "If you believe that there is any information concerning your condition, which may have been overlooked by the Westscheme
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In explaining that letter the author, Terri Cowain, said she possibly did not express herself as clearly as she could have done. She agreed she could have asked whether the plaintiff had undergone surgery on 1 September 2003 but did not do so. She did say, however, that she would have expected the plaintiff or his solicitors to respond to this letter by informing the trustee that surgery had never taken place. 30 Following the trustee's letter of 15 October 2003 the plaintiff's solicitors wrote once again to the insurer on 16 October 2003 pointing out that their client's patience was running thin and that they had been instructed to issue a writ within the next 14 days unless a decision was made in respect of their client's claim. There was no response to this letter. 31 It was not until 3 March 2004 that the insurer contacted Sir Charles Gairdner Hospital and asked whether the planned surgery had taken place. The hospital subsequently replied that the surgery had not taken place on 1 September 2003 and had been cancelled because the plaintiff did not attend the pre-admission clinic on two occasions.
Liability of insurer 32 A question has arisen as to whether the second defendant as insurer can be found liable to the plaintiff. The contract of insurance was between the trustee and the insurer. The plaintiff was not a party to the contract. This raises the issue of privity and whether the plaintiff can enforce the terms of the insurance contract against the insurer. In considering this issue I will have to take into account the relevant provisions of the Property Law Act and the Insurance Contracts Act. I propose to consider each of these statutes separately.
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(a) Insurance Contracts Act Section 13 of the Act stipulates that a contract of insurance is a contract based on the utmost good faith and contains an implied provision requiring each party to it to act towards the other party with the utmost good faith. Section 48 of the Act provides that: "1. Where a person is not a party to a contract of general insurance is specified or referred to in the contract, whether by name or otherwise, as a person to whom the insurance cover provided by the contract extends, that person has a right to recover the amount of the person's loss from the insurer in accordance with the contract notwithstanding that the person is not a party to the contract." Counsel for the defendant argued that the legislation did not apply to the plaintiff for several reasons. In the first place a person who might otherwise fall within s 48 only has a right to recover the amount of that person's "loss" from the insurer in accordance with the contract. Counsel for the defendant submitted that the plaintiff's claim for a total and permanent disability payment was not a claim for loss within the meaning of s 48. In support of that submission reference was made to McArthur v Mercantile Mutual Life Insurance Co Ltd; [2001] QCA 317 where McPherson JA, dealing with a claim under a policy of insurance, said at par [4]: "The plaintiff is not himself a party to the contract of insurance, and in para 4 of the defence the defendant originally took the point that he could not sue on it. The question does not seem to have been pursued at the hearing presumably because s 48(1) of the Insurance Contracts act 1984, which applies to contracts of general insurance, enables a person not a party, but to whom the insurance cover extends, to recover the amount of his "loss" from the insurer. The word 'loss' is not defined in the Act and does not seem especially apt to describe a money sum like the Agreed Benefits of $80,000 payable on the happening of a particular event and so recoverable as a debt on proof of that event. The common law, it was said in Young v Queensland Trustees Ltd (1956) 99 CLR 560, 567, 'does not and never did conceive of indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the
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detention of a sum of money…'. But it is probably being unduly technical to deny to non-payment of $80,000 the character of a 'loss' within the meaning of s 49(1) of the Act … In any case, even if s 49(1) does not apply to it and s 7 of the Act is given full effect, it would probably be open to the plaintiff to rely on s 55 of the Property Law Act 1974 as a beneficiary having the right to enforce the duty imposed on the defendant under the contract of insurance. The question was not raised on appeal and is mentioned here only to show it has not been overlooked." This dicta would seem to apply here where the claim for a total and permanent disability payment was for a fixed sum prescribed in the contract of insurance. But I certainly do not read McPherson JA to be saying that a claim for a liquidated amount can never constitute a "loss" within the meaning of the Act. On the contrary, the learned Judge of Appeal expressly said this might be considered too technical an approach. A second argument advanced against the application of s 48 was that it only applied to a policy of general insurance. The expression "general insurance" is defined as a contract that is not a contract of life insurance. The policy in this case, however, was said to be a life policy within the definition of that expression in the Life Insurance Act 1995. Section 9 of that Act defines what constitutes a life policy. The expression "life policy" encompasses what is referred to as a "continuous disability policy" as defined in s 9A. While no detailed argument was addressed to this issue it is possible the disablement provisions in this instance fall within the ambit of a continuous disability policy. I do not believe I need make a ruling on this issue because, for the reasons I give later, I am satisfied that, even if the Insurance Contracts Act has no application, the question of the insurer's liability can be decided on other grounds. A further reason advanced by counsel for the defendant in support of his submission that s 48 of the Act did not apply was the decision in Sayseng v Kellogg Superannuation Pty Ltd & Anor [2003] NSWSC 945. In that case the circumstances were very similar to those here. The plaintiff was a member of a Fund of which Kelloggs Superannuation was the trustee. The trustee was empowered by the Deed of Trust to obtain insurance policies for its members. The plaintiff claimed a payment for total and permanent disablement under the policy. After referring to the
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fact that the parties to the contract were the trustee and the insurer Bryson J said at par [22]: "Hanover did not, by the terms of its policy, insure or purport to insure Mr Sayseng. In this respect the policy is unlike the policy considered in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (1988) 165 CLR 107. Nor is Mr Sayseng entitled to recover under the insurance by s 48(1) of the Insurance Contracts Act 1984, as he is not specified or referred to in the policy whether by name or otherwise as a person to whom the insurance cover extends; notwithstanding his being one of the class of persons referred to in the Policy as Insured Persons the policy overall makes it clear that payments are to be made only to the trustee." Similarly the policy between the insurer and trustee in this case makes it clear in s 4.05 that claim payments must be made by the insurer to the trustee. But that does not affect the issue of the plaintiff's standing to bring this action against the insurer. As Bryson J explained at [par 78-81] of his judgment an insured person under the Trust Deed has standing to bring proceedings against the insurer. At [par 79] Bryson J said: "I was referred to…on the application of the duty of utmost good faith among persons who are not strictly contractual parties to an insurance policy. In my opinion the standing of Mr Sayseng is related to the duty of good faith in exercise by an insurer of rights under the contract including the right of controlling the settlement of claim; see [78-78]. In my view the observations of Mahoney JA support the view that a person other than a contracting party to the policy may have standing to challenge the effectiveness of an opinion formed by an insurer. [80] In my opinion there is no difficulty about the standing of Mr Sayseng to bring his claim against Hanover, notwithstanding that he is not a party to the insurance policy issued by Hanover. The Trustee as first defendant is a party to the insurance policy, and is a party to this litigation. On a whole view of the Trust Deed, the Trustee holds the Fund, of which the Policy is an asset, on trust for the persons who, in due administration, are entitled to payments out of the Fund; Mr Sayseng claims that he is such a person and that the Trustee is entitled to moneys, and whether or not he in fact is so entitled can only be established by determining the proceedings as a whole. In my view these
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considerations show that he has standing to bring the proceedings against Hanover." I believe this is the situation here. The parallels between that case and the one under consideration are only too clear. The plaintiff has standing to bring these proceedings against the insurer to the extent that he is able to challenge the decision of the insurer to defer consideration of his claim. I have based this ruling on the decision in Sayseng (supra) rather than on the provisions of the Insurance Contracts Act. (b) Property Law Act If there is any doubt as to this issue of the plaintiff's standing to bring these proceedings against the insurer I believe that doubt is removed by s 11(2) of the Property Law Act 1969. I do not intend to discuss the provisions of the Act in detail because this was not done by counsel at the trial. Mr Lampropoulos, who appears as counsel for the plaintiff, relied on s 11(2) and the decision in Trident General Insurance Co Ltd v McNeice Bros Pty Ltd (supra). Section 11(2) clearly encompasses the plaintiff who, though not named as a party to the contract of insurance, is nonetheless a person upon whom the contract purports to confer a benefit in the event of his total and permanent disablement. I am satisfied that s 11(2) overcomes any difficulty arising from the notion of privity.
Duties of Trustee 33 The duties of a trustee were described by Hodgson J in Chammas v Harwood Nominees Pty Ltd, NSWSC; BC9301704; 14 April 1993 in the following terms: "It does seem clear that the defendant was required to form an opinion under rule 18 both as a trustee and as an insurer. In Rapa v Patience, at 11 and 12, McLelland, J stated the grounds on which the performance by trustees of such functions may successfully be challenged: 'The grounds on which the performance by trustees of such functions may successfully be challenged are those applicable generally to the exercise by trustees of discretionary powers, helpfully discussed by McGarvie, J in Karger v Paul (1984) VR 161. As encapsulated by his Honour in that case there are three such grounds and in some circumstances a fourth. They are first, that the discretion was not exercised by the trustees in good faith, second, that the
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discretion was not exercised upon real and genuine consideration (which includes consideration of the wrong question – see Scott on Trusts 3rd ed Vol 3, para 187.3), third, that the discretion was not exercised in accordance with the purposes for which it was conferred and, fourth, where the trustees have disclosed (otherwise than in the course of the proceedings in which the discretion is challenged) the reasons for the exercise of their discretion that those reasons are not sound." (See also Eric Noel Tonkin & Ors v Western Mining Corporation Ltd & Anor [1998] WASCA 101). 34 The duties were defined in Telstra Super Pty Ltd Flegeltaub [2000] VSCA 180 in the following terms: "First, to act in good faith; secondly, to give real and genuine consideration to the right question; and, thirdly, to act for a proper (as opposed to an extraneous) purpose." 35 Another way in which the issue can be approached was discussed by Windeyer J in Maciejewski v Telstra Super Pty Ltd [1999] NSWSC 341 at [13]: "What the plaintiff must establish to make out her claim for relief is that the decision of the Trustee to reject her claim was a decision that no reasonable person could come to on the evidence available to it. It is not the function of the Court to decide whether a particular decision might or might not have been more reasonable in its view than the decision to which the Trustee have come." 36 The question in this case seems to be whether the trustee, in reviewing the insurer's decision and confirming it, exercised its discretion on a properly informed view of all the material before the insurer. 37 The duty of the insurer is set out in a series of decisions referred to by counsel. In Thomas Arthur Heitman v Guardian Assurance Co Ltd, unreported; SCt of WA; BC 9201339; 12 February 1992 the duty was explained by Franklyn J in the following terms: "In my view for total and permanent disablement within the meaning of the policy definition to be made out under subpara (ii) thereof, either the opinion there identified must be formed by the first defendant 'after consideration of medical evidence' or the first defendant must have had available to it,
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whether provided by the insured or obtained by its own volition, medical evidence for the purposes of such consideration of such a nature that it would be unreasonable for it on such consideration not to form such opinion. The opinion to be formed has two limbs. The first is as to the likelihood of the life insured ever resuming his former occupation and the second as to the likelihood of him engaging in any occupation or work for which he is then (ie at that time) reasonably qualified by education, training or experience. The relevant disablement will exist only if the opinion affirms both limbs. An affirmative opinion can only be achieved after consideration of medical evidence." (See also Eric Noel Tonkin & Ors v Western Mining Corporation Ltd & Anor (supra)). 38 The question in this case is whether the insurer, in reaching the decision that the claim should be deferred until further medical evidence as to the outcome of the surgery was made available, made a decision that, on all the material before it and available to it, was unreasonable in the circumstances. It was that standard of reasonableness which the trustee had to apply in reviewing the insurer's decision. With respect to the issues of the plaintiff's standing to bring proceedings against the insurer and the respective duties of the insurer and the trustee, counsel for the plaintiff relied on the decision of Beverley v Tyndall Life Insurance Co Ltd (1999) 21 WAR 327. In considering whether the insurer had wrongfully rejected the insured person's claim for total and permanent disablement under a policy of insurance the Full Court emphasised that the duty imposed upon an insurer is consistent with that imposed upon any person who, by contract, is required to carry out a quasi-judicial function. The duty is to act honestly, bona fide and reasonably. As Ipp J said at p 343: "I have previously noted that the discretion to be exercised by the insurer must be upon real and genuine consideration and on sound reasons. It follows that the insurer must consider the material before it with due care. A decision based on information which is 'both scant' and 'elliptic' will not be an effectual exercise of the insurer's power to determine the claim: see Wyllie v National Mutual Life Association Ltd. A decision based other than on reasonable consideration of the material will similarly be defective: see Vidovic v Email Superannuation Board."
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Findings on liability
39 Up to the point of receiving the letter from the plaintiff's solicitors dated 24 July 2003 all the information before the Trustee and the Insurer suggested the plaintiff was intending to undergo surgery. While reservations had been expressed by various medical practitioners as to whether the surgery would be successful the Trustee and Insurer were certainly entitled to assume that it was going to proceed. The situation changed significantly with the letter from the plaintiff's solicitors dated 24 July 2003. When it received the letter from the plaintiff's solicitors saying the plaintiff was not going to have surgery after all the insurer could have done one of two things. On the one hand it could simply have accepted what was said, coming as it did from the plaintiff's solicitors, and made a determination on the material it had; on the other hand it could have taken the precaution of checking that the plaintiff had definitely abandoned his long held plan to undergo surgery. 40 I do not believe the insurer could have been criticised for adopting the first option. After all, the information that the plaintiff was not going to have surgery and the request for a determination came from the plaintiff's solicitors which was tantamount to having come from the plaintiff himself. It was not really up to the insurer to question or go behind what the solicitors said their client had decided and wanted done. 41 But the insurer chose the second option. I do not think it can be criticised for that either. In the light of the plaintiff's frequently stated intention to undergo surgery, and the emphasis in the medical reports on some form of surgery definitely being contemplated, it was probably prudent of the insurer to ask what was going to happen particularly as the plaintiff's solicitors had not explained why their client had made this unexpected decision. 42 But once the decision to make an inquiry had been made the question arises as to whom it should have been made. The obvious choice would have been the plaintiff's solicitors. They were the ones who were speaking for the plaintiff. They were the ones who had called for a determination. But for some reason the insurer chose not to go back to them. Instead it went to the hospital for information. Again this decision, though perhaps unusual, was certainly not unreasonable. The hospital could be expected to provide the information sought. But the next step in the series of events was critical. The insurer received a one line facsimile reply on 12 August 2003 that surgery had been scheduled for 1 September 2003. The facsimile message was accompanied by what appears to have
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been a computer printout indicating surgery had been booked on 22 July 2003 two days before the date of the letter from the plaintiff's solicitors. What the insurer was faced with was a clear contradiction in the information it had. That contradiction had to be resolved before any decision could be made. I do not accept the argument that the insurer could reasonably have relied on the one line message from the hospital without further enquiry. Faced with this contradiction I am satisfied the insurer should have asked the plaintiff's solicitors for clarification. That would have been a simple enough step. But it was never taken. 43 The necessity for such a step became even more apparent only four days after the elbow replacement was supposed to have been performed. By letter dated 4 September 2003 the plaintiff's solicitors again asked the insurer to make a determination and enclosed the medical reports of Dr Clarke and Mr Prosser. This letter was significant in two respects: first, it was written three days after the surgery was supposed to have occurred; and second it enclosed reports from two medical practitioners who were clearly opposed to the notion of an elbow replacement. I am satisfied this letter should have alerted the insurer to the possibility of error. In my view it was hardly likely the solicitors would be continuing their demand for a determination only three days after their client had undergone surgery. But once again the insurer did nothing. 44 The next significant step in the sequence of events was the communication of the trustee's decision to the plaintiff and his solicitors by letter dated 15 October 2003. The defendants have argued that this letter discharged any obligation they might have had to the plaintiff. I cannot accept this. The main thrust of the letter was to inform the plaintiff that a decision to defer a determination had been made because of the belief that he had undergone surgery the previous month. That was clearly a major error. The letter went on to invite the plaintiff to send the trustee any additional information which he thought ought to be taken into account and undertook to review the matter in the light of such additional information. Counsel for the defendants argued that this was an opportunity for the plaintiff to tell the defendants that he had not in fact undergone surgery and explain the reason why. Had that been done, the argument went, his claim would have been reassessed. I accept that the trustee would have reassessed the claim in those circumstances. I take the view, however, that the defendant could not shift its obligations to make reasonable enquiries back to the plaintiff. I agree the plaintiff's solicitors could have responded in the way it was suggested they should have. But they had already told the trustee and the insurer of their client's decision. They had not been informed of what the insurer and the trustee had been
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told by the hospital. They were unaware of the contradictory information before the insurer. Without knowing that the insurer had made an enquiry to the hospital, and had been told the surgery was still on foot, the plaintiff's solicitors were entitled to assume that the insurer had simply continued to ignore or overlook what it had already been told in the solicitor's letter of 24 July. Neither the plaintiff nor his solicitors had created the confusion or uncertainty. The confusion and uncertainty was created by the insurer not following up the information it received from the hospital which clearly contradicted what it had already been told by the plaintiff's solicitors. 45 I find that the insurer's failure to make a complete and proper enquiry before deciding to defer consideration of the plaintiff's claim was unreasonable. The trustee, in reviewing that decision, ought to have arrived at the same conclusion and was in breach of its duty to the plaintiff in confirming the decision to defer consideration of the claim. While both the trustee and the insurer clearly had the power to defer a decision in the appropriate circumstances that was not the situation here. The point had been reached where the plaintiff had provided all the information he could and the insurer was not itself seeking any additional information. It was asked to make a determination within a reasonable time. The breach occurred at the latest at the end of September 2003. By that time the plaintiff had told the insurer and the trustee he was not undergoing surgery and there had been ample time for further enquiries to be made. By then the whole basis for a deferment had fallen away. The insurer had reasonable time to complete its enquiries but had done nothing.
Total and permanent disablement 46 Having made the finding that the insurer and trustee were in breach of their obligations to the plaintiff the next question I have to consider is whether the evidence establishes that the plaintiff was totally and permanently disabled under the insurance policy. I have already referred to the medical evidence in some detail but it may be necessary to repeat some of what I have already said. The starting point is the attending physician's statement completed by Mr Peter Honey. In this document the surgeon expressly asserted that the claimant was capable of doing very little and would not be able to go back to work. In his first report dated 19 February 2002 Dr Hewitt said he did not feel the plaintiff would be able to work using his right hand for heavy manual labour. Dr Flahive, in his report dated 2 May 2002, said he believed the plaintiff was unfit to return to work as an electrical trades assistant in the foreseeable future and
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that his capacity to return to work in a lighter role would depend upon his elbow becoming asymptomatic or his undergoing some treatment that proved effective. In his later report dated 7 November 2002 Dr Flahive repeated his earlier view that if the plaintiff underwent an operation he would only be able to return to very light work. He referred, for example, to electrical work in a workshop concentrating on small items or a supervisory role. This opinion, of course, was predicated on the plaintiff undergoing successful surgery. 47 The later reports of Dr Steve Clarke, an occupational physician, and Mr Alan Prosser, an orthopaedic surgeon, are even more significant. In his report dated 24 April 2003 Dr Clarke said it was obvious that the plaintiff was unfit for his normal work as an electrician. He said the plaintiff had a grossly restricted, weak and wasted right arm which would severely reduce his capacity to undertake manual work. He concluded by expressing his view that the plaintiff was totally and permanently disabled from doing his normal work or any other work for which he was suited or qualified by prior experience or training. 48 Mr Alan Prosser said much the same thing. In his report dated 26 May 2003 he said the plaintiff was incapacitated to such an extent as to prevent him from working as an electrical trades assistant. He pointed out that, when considering other employment prospects, the plaintiff was limited by a lack of transferable skills and his limited English. Even if he underwent a total elbow replacement, Mr Prosser was still of the view that he would be totally unfit for work as an electrical trades assistant and for any other job for which he was reasonably equipped by education, training or experience. 49 The question I have to decide is whether the plaintiff was unlikely ever to be capable of doing the duties involved as an electrical trades assistant or performing any other occupation for which he was reasonably suited by education, training or experience. The meaning of the word "unlikely" in this context means "no real chance or even improbable": Beverley v Tindall Life Insurance Co Ltd (supra) at p 337. The incapacity for further employment must be permanent: Chammas v Harwood Nominees Pty Ltd (supra). The possibility of remedial treatment rendering the plaintiff capable of working again must be taken into account. But where, as in this case, the prospects of successful treatment, surgical or otherwise, was not held with any real hope by any of the practitioners whose reports were in evidence, I must find it was unlikely his condition could be remedied by treatment. The end result is that the first report by the surgeon, Peter Honey, and the last two reports
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by Dr Clarke and Mr Prosser all point to the same conclusion, that is, that there is no real chance of the plaintiff ever being capable of doing any work for which he is reasonably suited by education, training or experience.
Conclusion 50 I am satisfied that the decisions of both the insurer and trustee to defer consideration of the plaintiff's claim were unreasonable and constituted a breach of their respective obligations to the plaintiff. I am also satisfied the evidence establishes that the plaintiff was totally and permanently incapacitated within the meaning of the policy. 51 I would allow the plaintiff's claim against both defendants.
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